On 22 December 2011, Indonesia announced government regulation PP 52/2011 which amends an investment-related income tax reduction programm introduced in 2007 (regulation 1/2007). This amendment came into force on the day of its announcement.

Form of the tax incentiveThe tax incentive allows participating companies to substract a shareof their total investment expenditure from their taxable income for aperiod of up to 10 years. The annual reduction is equal to 5 percent ofthe company's total investment in the given year. Participatingcompanies may invoke this reduction annualy for a period of six years. Under certain conditions, this period may be extended to up to 10years. Furthermore, participating companies receive accelerated amortizationand depreciation as well as more generous loss compensation allowancesto reduce their taxable income.Finally, participating companies need only pay a reduced income tax on dividends paid to foreign stockholders.

New minimum requirements for eligible investmentsWith the latest changes, selected companies are given an income tax reduction only if 80% of the investments have been completed (art. 2(2a) of regulation 52/2011).Furthermore, companies which have already obtained their investment permits before the regulation came into force but would like to obtain income tax reductions will be required to invest at least one trillion Indonesian rupiah (ca. 103.1 million USD using the exchange rate on the inception date) into facilities which have not yet been commercially operational at the time the regulation came into force (art. 4B of regulation 52/2011).Prior to these changes, the only criterion set to benefit from the described income tax reduction was for the investment to be on list of "sectors of national importance" or a designated region.

Amended list of eligible sectorsThe new regulation amends the list of eligible sectors. For instance, goat meat was deleted from the list; a number of tropical wood and milk products were restricted to specific geographical regions; whereas chocolate products and baby food were added to the list.

As this amendment reduces the scope of the income tax breaks and thereby of the state aid, this measure is classified as trade-liberalising.The GTA includes state guarantees and other financial incentives that are likely to affect the restructuring and performance of firms facing international competition, whether from imports, in export markets, and from foreign subsidiaries.